The Federal Reserve released the Beige Book this week. Below is the summary of its findings. It provides a great, near real time "you are here" explanation of the where the US economy is.
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Reports from the twelve Federal Reserve Districts suggest economic
activity continued to expand gradually in July and early August across
most regions and sectors. Six Districts indicated the local economy
continued to expand at a modest pace and another three cited moderate
growth; among the latter, Chicago noted that the pace of growth had
slowed from the prior period. The Philadelphia and Richmond Districts
reported slow growth in most sectors and declines in manufacturing,
while Boston cited mixed reports from business contacts and some
slowdown since the previous report.
Most Districts indicated that retail activity, including auto
sales, had increased since the last Beige Book report, although
Cleveland, Chicago, St. Louis, Dallas, and San Francisco noted the
retail improvements were small. Atlanta said that retail growth had
slowed, while Philadelphia indicated growth in retail sales was somewhat
faster than in the previous report. Boston, New York, Richmond,
Atlanta, Minneapolis, and San Francisco recorded strong performance in
tourism. Many Districts reported some softening in manufacturing, either
a slowdown in the rate of growth or a decline in the level of sales,
output, or orders; among those with declining shipments and orders,
Philadelphia noted that the rate of decline was tempering.
Districts mentioning nonfinancial services noted increased
activity, although at a slowing pace in Boston, softening in New York,
and "flattening" in Philadelphia; Kansas City reported that sales of
high-tech services declined slightly. Several Districts cited declining
demand for staffing services. According to District reports, bankers in
New York, Philadelphia, Cleveland, Atlanta, Chicago, and Kansas City saw
increases in demand for most loan types in recent months; by contrast,
St. Louis, Dallas, and San Francisco indicated that loan demand was
mixed, softening, or slightly weaker.
Real estate markets were generally said to be improving. On the
residential side, all 12 Districts cited increases in home sales, home
prices, or housing construction. Reports on commercial real estate
markets were also generally positive, although San Francisco noted
stable demand, Boston indicated conditions were not much changed since
the last report, and Richmond, Chicago, and St. Louis said commercial
real estate conditions were mixed.
District reports indicated that energy and mining activity was
generally high and increasing. However, Cleveland noted softening demand
for coal, while Minneapolis and Kansas City had some energy sectors up
and some down. The Midwest drought has reduced actual and expected farm
output, especially cotton, soybean, and/or corn crops in the Chicago,
Kansas City, and St. Louis Districts.
Most Districts reported that the selling prices of manufacturing
and retail products were largely stable. By exception, several Districts
noted concerns about rising agricultural commodity prices, and Richmond
mentioned a small uptick in retail prices. Hiring was said to be modest
across the Districts, and wage pressures were characterized as
contained.
Consumer Spending and Tourism
Most Districts reported that retail spending in July and early
August was up compared with the previous Beige Book. New York and San
Francisco noted strengthening sales compared with a softer May and June,
although in San Francisco's case, the rise was only "a bit further."
Philadelphia, Richmond, Minneapolis, and Kansas City reported stronger
retail sales, while Cleveland, Chicago, St. Louis, and Dallas all said
that sales were up "slightly." In the Atlanta District, most retail
contacts reported slower sales, while Boston's retail contacts provided a
mixed assessment. The Atlanta and San Francisco reports noted that
discount retailers performed better than traditional department stores,
while the Chicago report attributed the pace of growth in consumer
spending to heavy discounting by retailers clearing space for
back-to-school items. Boston and Chicago reported continuing weakness in
furniture sales; Boston also reported weak sales of electronics, but
Chicago noted some improvement in this category. Adult clothing sold
well in Boston, Chicago, and Dallas. The Atlanta District said that
luxury goods merchants, while still largely positive, provided more
mixed reports compared with earlier this year; Kansas City cited weaker
sales for high-end jewelry. For the remainder of 2012, Boston retailers
have mixed sales expectations, Philadelphia retailers are cautiously
optimistic, and those in Atlanta are conservative; retail contacts in
Minneapolis, Kansas City, and Dallas expect sales to rise through the
end of the year.
Automobile sales are up in the New York, Philadelphia, Atlanta,
St. Louis, Minneapolis, and Kansas City Districts, flat in Cleveland,
Chicago, and Dallas, and a bit slower paced in Richmond and San
Francisco; nonetheless, vehicle demand in the latter two Districts is
still strong, especially for used cars. The New York District reported
that new car sales are "particularly robust" and Kansas City cited a
sharp increase in new vehicle sales. Atlanta, St. Louis, and Kansas City
indicated that car dealers in their Districts expected these strong
automobile sales to continue, while the Philadelphia and Dallas
Districts reported concerns that consumer uncertainty might depress
vehicle sales in coming months.
Respondents in the Boston, New York, Richmond, Atlanta,
Minneapolis, and San Francisco Districts reported that tourist industry
performance remains strong. The Atlanta District mentioned that Florida
contacts reported a drop in European travelers, but said this decline
was offset by an increase in business from Central and South America.
Contacts in Boston noted some concern that weakness in Europe could
soften tourist activity and that rising gas prices could affect leisure
travel. The San Francisco District reported that the pace of growth had
slowed in Las Vegas and other areas.
Manufacturing and Related Services
The picture in manufacturing was mixed. The Boston, Chicago,
Kansas City and San Francisco Districts reported increasing demand and
sales since the previous Beige Book, although the improvement was
generally small and uneven, with two of these four Districts reporting
that demand growth, while positive, was slowing. Six Districts reported
that demand for manufactured goods was actually falling, although none
reported a dramatic fall. The outlook was somewhat more positive, with
six Districts reporting that manufacturers expected increasing demand
and only two reporting the opposite.
Areas of strength were varied. The Cleveland and Philadelphia
Districts both pointed to the revolution in natural gas production in
the United States as a driver of demand, but the Chicago District said
that a contact blamed cheap natural gas for weakness in demand for coal.
Several Districts noted that improvements in residential construction
boosted demand for products such as lumber, PVC, cement, and home goods.
The Chicago and Philadelphia Districts said that auto production was
positive, but Richmond said the opposite.
Weakness overseas remains a problem for U.S. manufacturing.
Reports from the Boston, Atlanta, and Chicago Districts explicitly
mentioned it. Although Europe represented one notable problem, several
Districts also mentioned weakness in demand in Asia as an issue. In
general, District reports indicate that the cost and availability of raw
materials has not been an issue for manufacturers recently, especially
as compared with the situation in previous years. Four Districts
reported lower input costs, but contacts in New York reported a slight
increase.
On the employment front, there was little movement. Across all
Districts, few manufacturing firms reported any major hiring or layoffs,
and the ones that did usually attributed it to idiosyncratic factors
like new products or restructuring related to a merger. The Cleveland
District reported that firms continued to have trouble finding skilled
workers. Capital spending also showed little change; in addition,
several Districts reported that contacted manufacturers had not revised
their investment plans.
Nonfinancial Services
Activity in nonfinancial services generally picked up since the
previous report, although results were mixed across Districts and
service industries. New York and Philadelphia reported that overall
service-sector activity was flat to down slightly, whereas Minneapolis
and San Francisco noted expanding activity. Several Districts, including
Boston, Richmond, and San Francisco, reported steady to increasing
demand for information technology services; Kansas City, by contrast,
cited decreased sales at high-tech services firms. Reports from the
healthcare sector were also somewhat mixed, with Philadelphia and St.
Louis reporting positive results and San Francisco noting a drop in the
frequency of elective procedures. Advertisers in the Philadelphia and
San Francisco Districts continued to report strong revenues. In the
Dallas District, legal firms reported continued increases in demand for
services, while accounting firms cited seasonal slowness. Demand for
staffing services was generally lower than expected, with decreases
reported by Boston, New York, Richmond, and Dallas. Even so, demand
remained strong for highly skilled IT personnel in the Boston and
Richmond Districts.
Reports on transportation services were generally positive. Rail
contacts reported continued increases in intermodal shipments in the
Atlanta District and increased cargo volumes in the Dallas District,
with both Districts recognizing gains in lumber shipments. Atlanta and
Dallas also reported steady to increasing demand for trucking services,
whereas logistics firms and carriers in the Philadelphia District
reported a relatively sluggish start to the traditional "freight
season."
Banking and Financial Services
Credit conditions have improved over the reporting period
according to District reports. Credit spreads were lower and competition
for high-quality borrowers among lending institutions has increased.
The New York District noted that shrinking spreads were observed
particularly in commercial and industrial loans as well as in commercial
mortgages. Some bankers in the Cleveland District mentioned a moderate
loosening of lending guidelines. The New York, St. Louis, and Kansas
City Districts reported unchanged credit standards; New York and
Cleveland cited declining delinquency rates.
The direction and magnitude of changes in loan demand varied
among the Districts and also with respect to type of loan. The Richmond
and Atlanta Districts reported generally low demand for loans, but some
pockets of growth. The Chicago District noted that growth in business
loan demand was generated mostly from small and mid-size firms and for
the purpose of refinancing rather than financing capital expenditures.
Cleveland, St. Louis, and San Francisco mentioned small positive or
negative changes in business credit demand, and relatively strong demand
for consumer credit. The Kansas City District reported stable demand
for commercial and industrial loans and commercial real estate loans,
while Dallas noted softer demand for loans overall; however, both
Districts cited increases in demand for residential real estate loans.
The New York and Philadelphia Districts observed growth in most lending
categories.
Real Estate and Construction
Housing markets across most Districts exhibited signs of
improvement, with sales and construction continuing to increase. Dallas
reported significant levels of buyer traffic, Richmond noted strong
pending sales, and Minneapolis and St. Louis mentioned increases in
building permits. New York, Philadelphia, and Chicago indicated
improvements as well, but characterized the progress as slow and modest.
Declines in inventory levels were reported in Boston, New York,
Philadelphia, Atlanta, Dallas, and San Francisco; these declining
inventories put some upward pressure on prices according to Boston,
Atlanta, and Dallas. A reduction in the stock of distressed properties
was mentioned in New York, Richmond, and San Francisco. In Philadelphia
and Kansas City, the possibility of shadow inventory entering the market
remains a concern. In general, outlooks were positive, with continued
increases in activity expected, although the projected gains were more
modest in Boston, Cleveland, and Kansas City.
Commercial real estate market conditions held steady or improved
in nearly all Districts in recent weeks. New York, Philadelphia,
Minneapolis, and Kansas City all reported that commercial leasing
increased and vacancy rates fell. New York and Kansas City reported
increases in office rents as well; Kansas City also cited a rise in
commercial construction. Commercial building permits were up
significantly from one year ago in portions of the Minneapolis District.
Chicago's report was mixed: office vacancy rates remained high,
restraining demand for new office construction, but office leasing
demand improved modestly and industrial construction picked up. Atlanta
reported rising apartment rents and small gains in office leasing, with
weakness in the retail and industrial sectors. Boston reported that
office fundamentals were flat on average, with rising rents in portions
of Boston proper and muted but steady activity elsewhere in the
District. Nonresidential construction picked up in the Boston and
Cleveland Districts. Office and industrial real estate markets remained
healthy in Dallas. The St. Louis report noted an increase in commercial
construction across much of the District and varied reports on leasing
across areas within the District. In San Francisco, demand for
commercial property was stable while commercial construction was
limited. Richmond reported a decline in office leasing volume in
Washington, D.C., but some portions of the District recorded increasing
sales and construction. Multifamily real estate remained a strong
submarket and a key driver of construction in many Districts, including
Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago,
Minneapolis, Dallas, and San Francisco.
Agriculture and Natural Resources
According to District reports, agricultural conditions were mixed
largely because of severe drought conditions that affected the Midwest
more than the rest of the country. Producers in the Chicago, St. Louis,
and Kansas City Districts were all severely affected by the drought,
with cotton, soybean, and corn crops particularly damaged. Cotton
production in the Dallas District was also badly damaged, while the
northern part of the Minneapolis District reported good corn, soybean,
and wheat crops, and the San Francisco and Richmond Districts reported
strong demand for their healthy cotton crops. Although nearly all
agricultural commodity prices rose, higher feed costs led to reduced
herd sizes and lower livestock prices in nearly all Districts reporting
on livestock. Reports from the Richmond and Kansas City Districts
indicated that farmland values have continued to rise, although contacts
in the Kansas City District expected them to hold steady for the rest
of the year. Farm incomes generally rose or stayed the same in the
Minneapolis District.
Oil and gas activity continued to be robust across most
Districts. Extraction of natural gas and petroleum remained at high
levels in the Dallas and Minneapolis Districts and expanded in the
Cleveland and Richmond Districts, partly because of increased demand
from electrical utilities. Production increased in Gulf Coast oil
refineries in the Atlanta District as a result of closures along the
East Coast, while higher demand for crude oil, diesel, and other
distillates supported prices. However, natural gas producers in the
Cleveland, Richmond, Minneapolis, and Dallas Districts reported a
decline in exploration and drilling of new wells on account of high
inventories and low prices. Coal demand was unchanged from 2011 in the
St. Louis District but was expected to fall below 2011 levels in the
Cleveland District due to reduced demand for thermal coal from domestic
utilities and metallurgical coal from Europe and Asia. Iron ore,
taconite, and sand mines in the Minneapolis District continued to
operate at high capacity.
Employment, Wages, and Prices
Most Districts reported that employment was holding steady or
growing only slightly. Several Districts including Boston, New York,
Philadelphia, and Richmond noted a softening in employment relative to
expectations; upcoming layoffs were reported by a defense contractor in
the Boston District and by firms in sectors such as air transportation,
appliances, and business support services in the St Louis District.
Almost all Districts indicated that manufacturers were continuing to
hire, albeit modestly. Demand has been strongest for skilled
manufacturing and engineering positions, as well as for IT services.
Contacts in the Cleveland, Richmond, Atlanta, Kansas City, and Dallas
Districts all reported some difficulty meeting demand for truck drivers.
Overall, upward wage pressure was reported to be very contained
across Districts. The Philadelphia and Chicago Districts both noted that
despite little wage pressure, some contacts reported upward pressures
for medical benefits. Sources from Boston and Atlanta mentioned that
continuing demand was putting some upward pressure on wages for
highly-skilled positions in software, engineering, and information
technology. The San Francisco District also noted specialized IT
positions as an exception to generally limited wage growth. The Dallas
District reported upward wage pressure for truck drivers and
construction workers, and the Minneapolis District noted wage increases
in areas with increased oil drilling.
Most Districts reported that overall prices for finished goods
were relatively stable despite somewhat increased input prices. Higher
prices for grain and other food commodities were cited by many
Districts, primarily due to the drought. The Cleveland District noted
increased upward pressure on lumber prices, while contacts in Boston,
Philadelphia, and Minneapolis reported higher gasoline prices as a
potential concern. Chicago mentioned some pass-through of higher crop
prices to wholesale prices, while contacts in the Kansas City and
Richmond Districts expected to raise future prices in response to more
expensive raw materials.
